The Argentine Congress is in the processing of debating a law that will offer tax amnesty to Argentines in exchange for the payment of a ‘special’ one-off tax on the value of undeclared assets and income. According to the bill, money raised will be used to pay off “historical debts” owed by the government to Argentine pensioners.

Aside from this politically-friendly motive, the government hopes to see billions of dollars in offshore wealth returned to the country, which would act as both source of revenue and a means of fostering private sector investment and growth.

However, the law – nicknamed the “ley de blanqueo” – has caused controversy both because it would seem to reward historic tax evaders and because of the manner in which it has been introduced.

Here’s a breakdown of what it’s all about and why it is controversial.

The law, entitled the “The Regime for Fiscal Legitimisation”, was introduced to Congress by the government as part of a 90-page omnibus or “mega” bill that includes a program for the historical reparation of pensioners, changes to the pension scheme, and amendments to Federal/Provincial funding arrangements.

The law creates the framework for registering previously undeclared assets and income.

Until 31st March 2017, Argentines will have the opportunity to self-report undeclared assets and income to the Argentine Tax Office, AFIP, without facing prosecution for tax evasion or being required to pay tax liabilities owing on the assets. They will not be required to repatriate this wealth to Argentina.

Depending on the amount declared, and how soon it is declared, those who take advantage of the law will pay a “special tax” of between 0 and 15% on the total amount. Alternatively, they can invest an equivalent amount in government bonds or a ‘common fund’ that will finance, among other things, public infrastructure projects and small to medium-sized businesses.

The ‘special tax’ rate is set out below:

● Assets below $305,000 (~US$20,500): 0%
● Assets between $305,000 and $800,000 (~US$53,600): 5% on the value of the assets.
● Assets over $800,000:
– before 31 December 2016: 10%;
– after 31 December 2016 and until 31 March 2017: 15%

Moreover, the law anticipates the phasing out of certain taxes deemed ‘inefficient’ and will “reward” those who have been paying their taxes until now by removing the obligation to pay ‘Personal Property Tax’.

This was a talking point, as some were suspicious that President Macri and other government officials would benefit from the laws by ‘whitening’ their own dirty washing (earlier this year, the Panama Papers linked Macri to a Bahamas-based holding company, though he denies holding any undeclared assets or any wrong-doing.)

However, in the final version of the law approved in the lower house, the president, vice-president, other elected representatives, members of the Judiciary and their immediate family are excluded from the amnesty.

There’s a reason people joke about Miami being the capital of Argentina: there is a lot of Argentine wealth stashed overseas. Earlier this month, the president of state-run Banco Nación Carlos Melconian told a chat show host that: “like all Argentines, I have money held overseas.” (Melconian’s sworn tax statement reveals that he holds 85%, or $65.8m, of his assets outside of Argentina.)

The government wants to get as much of that wealth as possible back into the formal system and in reach of the tax office, particularly at a time when it is trying to cut back on government spending.

Though not obliged by the law, the government will also encourage individuals and companies to bring overseas assets into Argentina and spur local private investment. President Mauricio Macri said he would set an example by repatriating the $18.7m he was holding in an offshore account in The Bahamas (this would not be part of the tax amnesty as the funds were declared by the president this year).

The money raised through the ‘special tax’ will be used to pay ‘historical reparations’ to retirees and pensioners, many of whom have been battling the government in court for years over inadequate pensions.

There are a staggering number of pensioners and retirees owed payments from the state. According to the government, there are two million Argentines owed pensions, as well as some 300,000 owed retroactive payment, due to underpayment of pensions over the years.

Financing this debt at a time when the new government wants to limit government spending was always going to be a challenge. Hence, the amnesty, which will the government hopes will generate enough revenue to pay the long-suffering pensioners their dues. Others are less convinced given the potential scale of the historic debt.

The obvious – that this law rewards tax evaders and punishes working-class Argentines who lack the money and resources to hide assets offshore.

There is also anger over the way in which the law has been passed. By including it as part of a 90 page mega-bill, the government has in some ways stymied debate of the law. No one wants to deny pensioners and retirees, a particularly vulnerable and overlooked class of people in Argentina, their “historical reparations”. However, critics say there is no reason reparations should necessarily be tied to a tax amnesty, which some argue should be debated separately and on its own merits.

There are also complaints about the 11th-hour insertion of an article that sees the Financial Intelligence Unit (UIF) – the agency charged with the task of monitoring money laundering and terrorist funding – moved from the Justice Ministry into the Finance Ministry.

Critics see this as part of a broader attempt to weaken the UIF, which has undergone serious changes since President Macri came to power, including a restructure and a number of new controversial appointments.

However, the government claims this will help systematise the fight against financial crimes.

That depends on how many people are spurred to take the government up on its offer of amnesty.

The government is hoping that at least US$20bn will be incorporated into the formal financial system. However, the most recent precedent is not encouraging: the two-year extended tax amnesty offered by the previous government only recovered US$2.6bn, less than half the amount expected.

As many point out, repeated amnesties would seem to undermine the effectiveness of any new amnesty. After all, why declare now when there’s always another round of forgiveness on the horizon? At worst they may actually encourage tax evasion: why continue paying taxes when those around you benefit from avoidance?

However, the Argentine government believes that this time things are different.

Firstly, President Macri has credibility on the issue, and claims to have the confidence of those who may have undeclared assets stashed overseas. A former businessman who came to power with the campaign slogan “Let’s Change”, he has already implemented a number of pro-market reforms. He began his term by lifting currency controls that prohibited Argentines from acquiring US dollars, before negotiating an end to the 15-year long battle between the Argentine government and ‘Vulture Funds’ over unpaid debt, thereby facilitating Argentina’s return to international markets.

Secondly, the government claims that this is the right moment in history for the tax amnesty, with momentum gathering around a global movement to stamp out tax evasion. In particular, it references the Common Reporting Standard signed by 90 countries (the United States being a notable exception) that aims to makes it easier to fight tax evasion through the sharing of financial information.

In short, it claims that time is running out for tax evaders, which makes this amnesty particularly appealing and definitive.

Yes, you should know about, and check out, the official website. It features some odd, outdated photos of ‘Argentines’ at ‘Computers’ (most likely using something called the ‘Intenet’) and a colour scheme best described as ‘sickly teal’.